Factor rate calculation is straightforward: multiply the factor rate by the advance amount, and the result is your total payback. No interest accrual, no compounding, no daily principal calculation. The factor rate locks in total cost at signing and stays fixed regardless of how long repayment takes.
Where it gets nuanced: comparing the factor-rate cost to APR for shopping against bank loans requires a separate conversion. Below is the formula plus worked examples on common advance sizes.
The Core Formula
Total payback = Factor rate × Advance amount
Cost of capital = Total payback − Advance amount
Daily ACH = Total payback ÷ Term in business days
Worked Examples
$25,000 advance at 1.20 factor, 5-month term
- Total payback: $25,000 × 1.20 = $30,000
- Cost of capital: $5,000
- Daily ACH (5 months ≈ 110 business days): $30,000 ÷ 110 = $273/day
$50,000 advance at 1.25 factor, 6-month term
- Total payback: $50,000 × 1.25 = $62,500
- Cost of capital: $12,500
- Daily ACH (6 months ≈ 130 business days): $62,500 ÷ 130 = $481/day
$100,000 advance at 1.30 factor, 9-month term
- Total payback: $100,000 × 1.30 = $130,000
- Cost of capital: $30,000
- Daily ACH (9 months ≈ 196 business days): $130,000 ÷ 196 = $663/day
$200,000 advance at 1.35 factor, 12-month term
- Total payback: $200,000 × 1.35 = $270,000
- Cost of capital: $70,000
- Daily ACH (12 months ≈ 261 business days): $270,000 ÷ 261 = $1,034/day
APR-Equivalent Conversion
To compare an MCA against a bank loan honestly, convert the factor rate to an APR-equivalent. Approximation:
APR ≈ ((Factor − 1) × 365 ÷ Term in days) × 2
The "× 2" accounts for the declining principal balance during repayment (your average outstanding is roughly half the original advance).
APR-equivalent on the same examples
- $25K @ 1.20, 5 months (≈150 days): ((0.20 × 365 ÷ 150) × 2 ≈ 97% APR
- $50K @ 1.25, 6 months (≈180 days): ((0.25 × 365 ÷ 180) × 2 ≈ 101% APR
- $100K @ 1.30, 9 months (≈270 days): ((0.30 × 365 ÷ 270) × 2 ≈ 81% APR
- $200K @ 1.35, 12 months (≈365 days): ((0.35 × 365 ÷ 365) × 2 ≈ 70% APR
Note: longer terms produce lower APR-equivalents because the cost is spread over more time. Same total dollar cost, different annualized rate.
Why Funders Don't Lead With This Math
Most MCA marketing leads with factor rate (1.25 sounds small) rather than APR-equivalent (100% sounds large). Both numbers are accurate. Both describe the same deal. State disclosure laws (NY FAIR Act, CA SB 1235, others) increasingly require funders to provide both — see our regulations breakdown.
Westline provides APR-equivalent disclosure on every advance regardless of state, alongside total payback and daily ACH amount. More detail on factor rate vs APR.
Apply with Westline — 855-439-0082.
Sources & References
- Bank denial and small business credit access figures cited in this piece are derived from the Federal Reserve Small Business Credit Survey. Approval rates for small business credit applications at large banks have ranged from approximately 13%-31% across recent survey years, depending on bank category and reporting period.
- Small business finance landscape and lending program data: SBA Office of Advocacy.
- Merchant cash advance industry standards and disclosure practices: Small Business Finance Association (SBFA).
- Commercial financing disclosure regulations referenced (NY FAIR Act, CA SB 1235/666/362, VA, UT) are summarized from the published statutes; consult counsel for specific compliance application.